From Communism to Capitalism - Cuba opening up to property investment
|Wednesday, 01 October 2008|
It is said that a true property hotspot hasn't even been talked about yet. That a few brave investors whisper about the prospects and are careful not to brag and let the news out that they have found the next exciting investment opportunity.
With its crumbling colonial architecture that hasn't changed much since Ernest Hemingway described it as the most wonderful place in the world, Cuba is the subject of these kind of whispers. A few investors willing to take a risk on a country which is still, in theory, Marxist, are putting their hard earned cash into the future of this Caribbean island that is still shrouded in a mask of mystery and romance.
But it is precisely this aura that is proving attractive. Andrew Macdonald, chief executive of Esencia, a British company that is developing the first residential project to be permitted in Cuba in a strategic partnership with the Cuban government, describes Cuba as 'romantic'.
It is, perhaps, even more interesting to note that an indirect investor in this project is Sir Terence Conran, famed for his love of Cuban cigars, through his company D&D which is a shareholder in Esencia. And his design company, Conran & Partners, will work on the villas and apartments of the £275 million project which also includes a boutique hotel, spa and an 18 hole championship golf course.
While the island is still recovering from the full force of the hurricane season, and this is one annual phenomenon that property investors will need to take into account, Macdonald is enthusiastically examining the long term prospects of investing in Cuba.
Indeed the Carbonera Country Club resort will be the first of nine new golf centred projects. The site will be on a 75 year lease but the Cuban government is understood to be looking at allowing outright ownership in the future.
Macdonald believes that the island's already increasing tourism trade can really explode especially since the Cuban government is eager to attract foreigners.
A second major investor in Cuba is Leisure Canada which is developing three projects. Interestingly this Canadian venture is backed by £20 million of investment from Dubai's Profile Group.
Leisure Canada is developing 1,400 luxury five star hotel rooms, two golf courses and 600 bungalows and villas at Jibacoa and a 737 bedroom hotel in Havana next to the National Aquarium and Miramar Trade Centre aimed at business travellers and high end tourists.
Its third development will be a 380 room luxury hotel on the tiny island of Cayo Largo off the Cuban south coast which is popular with divers.
The company believes Cuba has the potential to become the leading sun destination in the Caribbean with over 300 beaches, diving, fishing, music and other cultural attractions.
'Only political barriers have stood in the way of Cuba realizing its economic potential and these barriers are beginning to fall. Cuba is positioned to become the future economic powerhouse of the Caribbean. It is without doubt the most exciting new market in the world,' a spokesman said.
Indeed since Fidel Castro resigned as President in February after half a century in power, there has been a change in the government's attitude to property ownership.
One of Fidel's first acts after seizing power in 1959 was to expropriate private property. But under his brother Raul, foreign and private investment is now being actively encouraged and the Cuban government wants to take the country's £1 billion a year tourism industry upmarket and away from the current all inclusive resorts.
Foreigners cannot buy freehold and while there may be no ownership problems with new properties on these new resorts it is not clear what will happen to existing buildings. There are a large number of architecturally stunning colonial buildings which have fallen into disrepair and which would be very attractive to foreign investors who want to renovate them and either use them as a holiday home or to rent out to tourists.
But this means opening up the areas of Cuba that the tourists don't always see. Many parts of Cuba are still desperately poor. Although computers from China appeared in the shops in Cuba for the first time earlier this year costing $800, few could afford to buy them.
Away from the tourist areas with their smart restaurants, designer shops and modern hotels dilapidated buildings with wires hanging from roofs sit on streets that haven't been re-surfaced for over 50 years.
It also raises the question of who owns the property and opens up a quagmire with regard to potential claims from not just Cubans who found their property seized by the state but also exiles who might seek to try to make a claim for property they lost.
Although the constitution now allows private property ownership and technically the majority of Cubans now own their own homes they are not allowed to buy or sell to each other, let alone a foreigner. A kind of swap system exists and although money inevitably changes hands it is in an underground world that would offer no security to the foreign buyer.
There are no legal estate agents and no mortgages. But every Saturday a crowd of people gather under the ficus trees on El Prado, one of Havana's grand avenues, carrying cardboard signs advertising their property.
Rapid change is unlikely according to Jaime Suchlicki, professor and director of the Institute for Cuban and Cuban-American studies at the University of Miami. Too sudden economic reform might lead to an unravelling of political control, something Raul and the military fear, he said.
Major investment is also needed in the island's infrastructure, especially roads, airports and the electrical supply system. Sanitary and medical facilities are described as inadequate.
It is virtually impossible to get independent advice on buying in Cuba. Property analysts describe it as 'an interesting prospect' but few are willing to predict what could happen.
Although John Howell, a senior partner with the International Law Partnership, said it is worth looking at it if you don't mind taking a risk. He points out that there is no guarantee that there will be an easy transition from Communism to Capitalism and that is why prices are cheap.
'However, it is a fabulous place and will come right in the end. If I had a pot of money I could afford to lose I would buy there, but it's not the kind of place to invest your life savings,' he added.
But who will buy? Anyone living in the US can't buy in their own name in Cuba. Relations with Russia aren't too good so oil rich oligarchs are unlikely to be rushing to book flights to Cuba.
According to Macdonald and Leisure Canada, Canadians and the British are the most likely investors. They don't face restrictions and the number of tourists from Canada and the UK has been steadily rising.
But one big stumbling block remains – relations with the US. 'If relations between the two could be normalised this would stimulate the further development of tourism and the flow of foreign currency,' said one commentator.
The fact that US presidential candidate Barack Obama has said he is ready to open a dialogue with Cuba if he becomes President does give some hope. But Cuba's record on human rights, with many political prisoners incarcerated in the island's jails, would have to be addressed.
There can be little doubt that there is a frisson of excitement about Cuba. As Macdonald says: 'It's cultural, it's glamorous, and it's exotic. Cuba has influenced the whole of South America. It's the romance.'
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